Altman Z-Score Analysis: Samsung Electronics vs. Apple Inc.
Introduction
Background and Objective
Predicting corporate bankruptcy has been a significant concern for creditors, investors, and financial analysts ever since the beginning of contemporary financial markets.Edward I. Altman revolutionized financial analysis in 1968 with the Z-score model, a tool that predicts a company’s likelihood of going bankrupt within two years using five important financial ratios. It became one of the most widely used models for forecasting financial distress in both academic research and practical financial analysis and was first developed for publicly traded manufacturing companies. The significance of Altman’s model lies in its capacity to integrate various aspects of financial well-being, such as liquidity, profitability, leverage, solvency and activity, into a single, unambiguous score. Businesses with Z-scores greater than 3.0 are thought to be financially secure and unlikely to go bankrupt.
Research Purpose and Scope
This report applies Altman’s Z-score methodology to analyze and compare the financial health of two global technology giants over a three-year period (2021-2024). The primary objectives of this analysis are:
1. International Comparative Analysis: Evaluate the financial stability of leading technology companies from different global markets (Korean and American)
2. Cross-Market Application: Assess how the Z-score model performs when applied to companies operating under different accounting standards and market conditions
3. Industry Leadership Analysis: Examine the financial health of two companies that dominate the global consumer electronics and technology hardware markets
Methodology Overview
This analysis employs Altman’s original Z-score formula:
The breakdown of the components is the following:
1. Working Capital / Total Assets
Measures liquidity (short-term financial health).
Higher values indicate better ability to cover short-term obligations.
2. Retained Earnings / Total Assets
Measures profitability and reinvestment.
Companies with higher retained earnings relative to assets are more stable.
3. EBIT / Total Assets
Measures operating efficiency (Earnings Before Interest and Taxes).
Reflects how well assets generate profits before financing costs.
4. Sales / Total Assets
Measures asset turnover (revenue generation per unit of assets).
Higher values suggest efficient use of assets.
5. Market Value of Equity / Total Liabilities
Measures solvency (ability to cover long-term debts).
Higher values indicate stronger market confidence and lower leverage.
Company Selection
For this comparative study, I have selected two global technology leaders of consumer electronics and technology innovation.
First of all, both companies are global leaders in the technology industry, so it’s interesting to see how they perform financially using the Z-score model. Since they directly compete in areas like smartphones, tablets, and semiconductors, it’s a good opportunity to compare how different business strategies impact financial stability.
Their business models are also quite different. Samsung is a large, diversified company with a strong focus on manufacturing and big investments in various tech areas. On the other hand, Apple focuses more on creating a connected ecosystem, offering premium and multiple products and services.
Another reason for choosing these two is that they operate in different countries and follow different accounting standards (K-GAAP/K-IFRS for Samsung and US-GAAP for Apple). This international angle helps to see how these differences might affect the Z-score results.
Also, both companies are very transparent and publish detailed financial reports in English, which is really important for making sure the Z-score calculations are accurate.
Finally, since both Apple and Samsung are extremely important to the global tech industry and financial markets, their financial health can tell us a lot about the overall economic trends and risks in the sector.
Samsung Electronics Co., Ltd. (005930.KS)
- Market: KOSPI (Korea Composite Stock Price Index)
- Headquarters: Seoul, South Korea
- Primary Business: Semiconductors, mobile devices, consumer electronic and display technologies
- Market Position: World’s largest memory chip manufacturer and leading smartphone producer
- Financial Data Source: Samsung Electronics Investor Relations
- Analysis Period: Fiscal years 2022, 2023, and 2024
Apple Inc. (AAPL)
- Market: NASDAQ (National Association of Securities Dealers
- Automated Quotations)
- Headquarters: Cupertino, California, United States
- Primary Business: Consumer electronics, software, and digital services (iPhone, Mac, iPad, services)
- Market Position: World’s most valuable company by market capitalization and leading premium device manufacturer
- Financial Data Source: Apple Investor Relations
- Analysis Period: Fiscal years 2022, 2023 and 2024
